I had power. I could do anything. No longer would I have to call my parents and ask for help when I needed something. It was my time to be an adult (ew, why was I excited for that?).

The best part about it (at the time) was that I literally did nothing for this money except go to school: It was my financial aid refund.

What is a Financial Aid Refund?

A financial aid refund is the money you get back after all your financial aid has been disbursed to your student account.

If you have receive more aid than you need to cover your account balance, you get the remainder back in the form of a big, fat check (or bookstore vouchers) from your institution.

Here’s the catch, though: That money could be coming from your student loans, meaning that it’s not free money. That money has big, fat interest associated with it that you will, one day, have to pay.

Who has the power now?

6 Irresponsible Things I Did With My Financial Aid Refund

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I thought they were good ideas at the time.

1. I Purchased Things I Didn’t Need

Having a hefty amount in my checking account made it easy for me to fall into the hole that is online shopping.

I bought new clothes, designer handbags, shoes, etc. I’m pretty sure I no longer use or wear any of those purchases, making this the category of spending I regret the most.

2. I Bought a Plane Ticket to Africa

The summer after my freshman year of college, I had the opportunity to volunteer at a district hospital in Rwanda.

I spent $2,500 on a plane ticket, but the experience I had there was so valuable, I don’t regret it at all.

3. I Splurged on a Spontaneous Trip to Europe

When my sophomore year ended, I headed straight for Amsterdam with nothing but a backpack and my passport. The total cost? More than $3,000.

Sure, the experience was amazing, but travel is a luxury and I definitely could have waited until after I graduated and had my finances in order.

4. I Helped Out My Friends

This is somewhat a catch-22; you’re damned if you do and damned if you don’t. More than once, I lent money to my friends when they needed it.

The end result? I’m not friends with those people anymore, and I lost more than $700 due to my generosity. Lesson learned.

5. I Lived College Life to the Fullest

I think I went to every single happy hour during my freshman year of college. I don’t even want to know how much money I spent…

But I know for a fact I spent most of that year’s financial aid refund on going out, because that was the only year of college I didn’t have a part-time job to cover my “fun” costs. My parents gave me an allowance of $100 a month to help cover living expenses, which was usually gone by the middle of the month (the real world is expensive!).

Getting that financial aid return check meant I didn’t have to worry about limiting myself. I didn’t throw wild bangers in my dorm room, but I did spend it on things that weren’t related to school.

6. I Donated to a Local Organization

As if I didn’t learn my lesson when it came to giving away money, one year, I donated half my return to a Zen Center I was actively involved in. The center desperately needed new equipment and was struggling to afford its rent.

Sure, it sounds like a good deed, and probably was one, but helping others with their finances should be something you do after you help your own. At this time, I had more than $3,000 in credit card debt — which is where I definitely should have put my return. I chose not to, and I’m still paying for it.

Here’s What Other Students Do With Financial Aid Refunds

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I’m not the only one making less-than-optimal decisions with loan money.

While this 2016 survey by Student Loan Hero doesn’t focus on financial aid refunds specifically, it demonstrates how some students spend their student loans on non-educational expenses.

According to the study, 41% of students surveyed used their loan funds to pay monthly bills, 15% bought new clothes with it, 13% used it to eat at restaurants, 19% used it to pay for cars and insurance, 3% used it to go on vacation and 2.5% spent it on drugs or alcohol.

Employees at The Penny Hoarder spent their financial aid returns in multiple ways, including paying up to six month’s worth of living expenses in advance, buying laptops, eating elaborate lobster dinners or even buying amusement park annual passes. Clearly, this was before they were Penny Hoarders.

What the Pros Say You Should Do With Your Refund

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Katharine Perry is a financial advisor at Fort Pitt Capital Group who specializes in working with millennials. She says students shouldn’t see their financial aid refunds as free cash.

“Nothing with student loans [is] ever free,” she explained. “So students need to be smart about what they do with the money.”

So, what should you do with it? Perry recommends students put it toward their indirect costs of school, such as books, supplies, off-campus housing costs, transportation, etc.

And if you already have those expenses covered, by say a part-time job or some extra help from your parents?

“Put it in a savings account,” she said. “You never know when you might need that money.”

And then, leave it there. “Make sure you’re being responsible about it,” she continued. “Definitely use it as a cushion in case you ever get in a bind, but be smart with it.”

What about student loans — should we use the money to pay them back? Perry feels that may not always be the best case. She advises students to put the extra money toward their debt with the highest interest rate.

“Student loans are going to hit you hard when you graduate, so make sure you don’t have any other debt outstanding when you graduate,” she said.

What I’m Doing With This Year’s Financial Aid Refund

Instead of doing what I normally do with my financial aid refunds (as much as it breaks my heart), I’ve vowed to make better choices, especially since this is the last year I’ll get a refund.

I already have a solid plan to pay off my debt. And as a result of that, I have an extremely tight college student budget.

Sometimes, even though I’ve started watching my spending, my bank account gets so low that I panic when I swipe my card for groceries, worried it’ll get declined. Since I don’t have much wiggle room, unexpected expenses would be hugely detrimental to my life.

So, instead of spending my financial aid return or giving it away, I’ve decided to let the funds act as a cushion, as Perry suggested.

The money’s sitting in my checking account, though, instead of in my savings, because I already have a savings plan that works for me, and because I want to test my willpower when it comes to spending.

I want to prove I can be responsible with a high balance in my account, and not spend the money just because I have it.

That extra balance also gives me peace of mind, mostly because I’ve been struggling to make ends meet recently due to my dog being hospitalized. For once, I don’t want to have to hold my breath when I swipe my debit card for essentials.

The choice to keep my financial aid return may be a small step in the right direction, but it’s a step nonetheless.

Your Turn: What have you spent your financial aid refund on? Let us know in the comments below!

Kelly Smith is a junior writer and engagement specialist at The Penny Hoarder and a senior at The University of Tampa. Her favorite parts about Amsterdam were the frites and fritessaus.

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